Rapid Industries has multiple divisions One division, Iron Products, makes a com

Question

Rapid Industries has multiple divisions One division, Iron Products, makes a component that another division, Austin, is cost of $7 00 and a full cost of $900. Iron Products has outside sales of 454,000 components at a price of $14.00 Austin currently purchases 45,000 units from an outside supplier at a price of $12 00 per unit. Assume that Austin desires to use a single supplier for its component. per unit needs areerter purchased 100% internally or 100% eternally b. What is the minimum transter price? (Round your answer to 2 decimal places.) inimum Transfer Price c. What is the maximum transfer price? (Round your answer to 2 decimal places.)

Explanation / Answer

Purchase outside Open Market Units Rate Value Units Cost Capacity        4,95,000 45000 12 540000 Sales Outside        4,54,000 14 63,56,000 Excess Capacity            41,000 VC        4,54,000                 7 31,78,000 FC        4,95,000                 2     9,90,000 Cost of Purchase outside            45,000 12     5,40,000 Current Profit, if purchase outside 16,48,000 Inhouse manufacturing Units Rate Value Capacity        4,95,000 Sales Outside        4,50,000 14 63,00,000 VC        4,95,000                 7 34,65,000 FC        4,95,000                 2     9,90,000 Current Profit (Inhouse Manufacturing) 18,45,000 Profit will increase by ( if 100% inhouse manuafcturing )$197,000(1845000-1648000) Calculation of minimum transfer price Profit increase due to inhouse transfer 197000 No of units 45000 Price can be reduced by 197000/45000             4.38 Price Purchase Outside           12.00 Inhouse minimum Transfer price             7.62 Per unit Maximum Tarnsfer price can be equivalent to purchase price from the market i.e 12 per unit

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